Lifetime Value to Customer Acquisition Cost Ratio
The LTV:CAC ratio compares the lifetime value of a customer to the cost of acquiring them. It's the single most important indicator of whether your business model is sustainable and scalable.
LTV: $6,000. CAC: $2,000. LTV:CAC = $6,000 / $2,000 = 3:1.
This ratio determines if you can profitably scale. Below 1:1 means you lose money on every customer. 3:1 is the gold standard, high enough to be profitable, but not so high that you're under-investing in growth.
Unhealthy
Break-even
Good
Excellent
Most VCs look for 3:1 or higher. Below 3:1 is a yellow flag; below 1:1 is a dealbreaker. However, very high ratios (10:1+) might mean you're under-investing in growth.
Yes. If your ratio is 10:1 or higher, you might be leaving growth on the table. You could likely spend more on acquisition and still maintain healthy unit economics.
Either increase LTV (reduce churn, increase ARPU, expand accounts) or decrease CAC (improve conversion rates, optimize channels, shorten sales cycles).
Customer Lifetime Value
Customer Lifetime Value (LTV or CLTV) is the total revenue you expect to earn fr...
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, i...
Customer Acquisition Cost Payback Period
CAC Payback Period is the number of months it takes to recover the cost of acqui...
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